In August 2012, the Iran Threat Reduction and Syria Human Rights Act of 2012 (ITR) was signed into law. ITR is part of a broad sanctions strategy designed to deter the pursuit of nuclear weapons and support for terrorism and terrorist groups by the Iranian government. ITR requires issuers that file public reports with the SEC to disclose, among other things, whether they or their affiliates knowingly engaged in various activities that are subject to sanctions under previously enacted Iranian sanction programs. These disclosure obligations will apply to reports that are required to be filed with the SEC on or after February 6, 2013.
Section 219 of ITR requires issuers to disclose in their Forms 10-K and 10-Q whether the issuer or its affiliates knowingly:
engaged in activities subject to sections under the Iran Sanctions Act of 1996 or the Comprehensive Iran Sanctions, Accountability and Divestment Act of 2010. Such activities include, among other things, those involving:
- investments in Iran’s petroleum industry, exportation of refined products to Iran and certain other transactions involving Iran’s petroleum industry; transactions facilitating Iran’s development of weapons of mass destruction and certain other weapons capabilities;
- transferring goods, technologies or services that are likely to be used by the Iranian government to commit human rights abuses, including transferring technology that is to be used to restrict the free flow of unbiased information in Iran or to disrupt, monitor or otherwise restrict speech of the Iranian people; and
- transactions involving U.S. financial institutions providing financial services for Iran’s Revolutionary Guard Corps or facilitating money laundering by the Central Bank of Iran or other Iranian financial institutions;
- conducted transactions with persons whose assets are blocked pursuant to certain executive orders relating to terrorism and the proliferation of weapons of mass destruction; or
- conducted transactions with the Iranian government without the specific authorization of a U.S. federal department or agency.
Issuers engaging in any reportable activity must disclose (i) the nature and extent of the activity, (ii) the gross revenues and net profits, if any, attributable to such activity, and (iii) whether the issuer or any affiliate of the issuer intends to continue the activity. If an issuer reports any of these activities in its periodic reports, it must also file a separate notice with the SEC advising the SEC that it has reported Iran-related activities in its periodic reports. The SEC is required to send these separate notices to the United States president and certain congressional committees, and to make these separate notices available on its website. After receiving the separate notice, the president is required to commence an investigation into the potential imposition of sanctions.
Issuers may want to consider reviewing their activities and those of their affiliates to assess whether they have engaged in any reportable transactions under the ITR. Corresponding with and gathering information from affiliates can be difficult and time consuming. Issuers may want to assess their internal controls to ensure they are able to monitor and identify future transactions that might be reportable under the ITR and work with their affiliates to establish detection and reporting programs to facilitate compliance with the ITR.